Tesco to return £700m to investors after Barclays deal

Tesco, Britain’s biggest grocer, is to return £700 million to shareholders after completing the sale of its retail banking operations to Barclays.
The supermarket chain said it would buy back shares from investors through an “incremental” buyback programme after the final tranche of an existing £1 billion programme was finished. As of October 25, it had completed £688 million of the current buyback.
Analysts at UBS Bank said the plan to return all of the £700 million of full cash proceeds to investors was “subtly better versus prior comment of returning ‘most’ of the cash proceeds”.
The news sent shares in the supermarket chain up by 5¾p, or 1.7 per cent, to close at 348p. The Tesco stock is up by about 28 per cent on the year.
Tesco is the latest in a series of London-listed companies, including Sainsbury’s, BP and Shell, to launch recent share buybacks, which are a strategy that companies use to return excess cash to their shareholders.
Some critics argue that such schemes can starve a business of money needed in other areas, such as investment in new products, while others suggest that such schemes are used by executives to manipulate the market by increasing the demand for and the price of shares.
Tesco’s share buyback came after it announced in February that it would sell its retail banking business of Tesco Bank to Barclays UK for an initial sum of £600 million.
The supermarket giant said on Friday that it had completed the sale of most of its banking operations in credit cards, loans and savings.
Tesco said the deal would kick off a ten-year partnership with the finance giant, where Tesco branding stays on its banking products while they are supplied by Barclays.
Barclays will market and distribute credit cards, loans and deposits using the Tesco brand, but Tesco Bank employees and customers will transfer to the new owner.
Ken Murphy, Tesco chief executive, said the deal would “unlock even greater value” for Tesco Bank customers. Consumers would get access to “new and innovative propositions, while continuing to enjoy the unique benefits of Tesco Clubcard”.
The deal includes Tesco’s Clubcard business, where customers get loyalty points for shopping at the chain in return for handing over their data.
Tesco had already sold its mortgage book and had been looking to sell its banking business.
Other retailers are also getting out of banking. Sainsbury’s said earlier this year that it was giving up on its ambitions to develop a big mainstream retail banking operation and would wind down Sainsbury’s Bank after 27 years.
Tesco accounts for about 27 per cent of the grocery market. The grocer’s boss recently said consumers were in “good shape” before Christmas and starting to treat themselves to more expensive goods, prompting the FTSE 100 retailer to lift its profit outlook.